Key Corporate Issues for GPs Investing in Nigerian Targets

Introduction
Nigeria remains one of Africa’s most dynamic private equity destinations. With a population exceeding 200 million, a deepening consumer base, and strategic industries spanning fintech, energy, telecoms, agriculture, and infrastructure, it is a market that general partners (GPs) cannot ignore. Yet, alongside these opportunities lie unique challenges rooted in corporate law, regulatory frameworks, taxation, governance, and execution realities.

For GPs evaluating Nigerian targets, due diligence must extend beyond commercial fundamentals. Corporate housekeeping, governance health, sectoral regulatory overlays, and currency repatriation mechanics can all materially affect investment value and exit prospects. This article highlights the key corporate issues GPs must consider when investing in Nigerian portfolio companies.

1. Structuring and Control
The first set of considerations revolves around how to structure the investment. Nigerian law offers multiple pathways—equity subscriptions, secondary share acquisitions, asset transfers, or hybrid structures involving offshore holdcos and onshore SPVs. Each route carries implications for approvals, taxes, and post-deal governance.

Control and Influence: Nigerian company law does not prescribe “control” uniformly across contexts. While the FCCPC looks at “material influence” in merger control, shareholders’ agreements and articles of association determine veto rights, reserved matters, and board composition. GPs must carefully negotiate these levers to avoid inadvertently triggering merger thresholds or sectoral restrictions.

Capital Table Sanitation: Many Nigerian companies suffer from poor corporate housekeeping—unclear share registers, unpaid or partly-paid shares, and undocumented transfers. Cleaning up the capitalization table before closing is critical.

Transfer Restrictions: Statutory pre-emption rights, ROFR/ROFO, drag and tag rights are common. Alignment with the shareholders’ agreement and articles avoids future deadlocks.

Financial Assistance: Nigerian companies are prohibited from providing direct or indirect financial assistance for the acquisition of their own shares, subject to certain exceptions set out in statute. This impacts acquisition financing and needs early structuring.

2. Regulatory Approvals
Investments in Nigerian targets often require a matrix of regulatory clearances. The FCCPC’s merger control regime is typically the starting point, but sectoral regulators also play decisive roles as obtaining final approval from the FCCPC is hinged first obtaining sectoral regulator approval.

Merger Control: Any transaction conferring control may require notification and clearance if turnover thresholds are met. Importantly, “control” extends beyond majority voting rights to include the ability to materially influence policy.

Sectoral Consents: These include CBN (banks/fintechs), NAICOM (insurance), PenCom (pensions), NCC (telecoms), NUPRC/NMDPRA (oil & gas), and NERC (power).

Foreign Investment & FX: To guarantee repatriation of dividends and exit proceeds, foreign investors must ensure proper capital importation through authorized dealer banks and secure an electronic certificate of capital importation (eCCI) in accordance with Nigeria’s capital importation regime. Without this, exit proceeds may be trapped.

Data and Compliance: With the enactment of the Nigeria Data Protection Act (NDPA) 2023, GPs must assess the target’s data protection posture, particularly in fintech, e-commerce, and telecoms.

3. Taxation and Incentives
Tax structuring is another central concern for GPs. Nigerian tax laws are evolving quickly, with heightened enforcement.

Deal Taxes: Share sales are subject to capital gains tax, though exemptions may apply. It is important to note that under recent tax legislation that will come into effect in January 2026, capital gains tax rate have now been increased up to 30%. Instruments attract stamp duties, and asset deals may trigger VAT.

Ongoing Taxes: Dividend withholding tax, transfer pricing rules, and thin capitalization limits can significantly affect returns.

Incentives: Nigeria offers pioneer status, free trade zone incentives, and sector-specific tax holidays.

4. Due Diligence Red Flags
Corporate sanitation is often a major due diligence challenge in Nigeria.

Corporate Records: Incomplete statutory filings, unregistered charges, or inconsistencies between Corporate Affairs Commission (CAC) filings and company registers are common.

Contracts: Material contracts frequently contain informal amendments, missing signatures, undated agreement or unenforceable clauses.

Licensing: Many Nigerian businesses operate with expired or inadequate licences, exposing them to regulatory risk.

Employees: Labour law issues include undocumented contracts, unpaid pensions and other employee statutory contributions and union disputes.

Property & IP: Title to land is governed by the Land Use Act and the various Land Instrument Registration Laws of the various States. Title to land also requires the consent of the Governor of a State. IP is often unregistered.

Litigation: High volumes of pending litigation, coupled with slow courts, mean disputes can hang over companies for years.

5. Documentation Essentials – Getting it Right
Well-crafted transaction documents are critical to any investment in Nigeria. They do more than transfer shares or inject capital, they allocate risk, ensure compliance, and provide the roadmap for governance and integration. Because Nigerian transactions often involve regulatory gaps and patchy records, the documentation phase becomes critical.

Share Purchase or Subscription Agreement (SPA/SSA): These remain the primary deal documents. Price mechanics should address locked-box vs. completion accounts, FX fluctuations, and inflation. Material Adverse Change (MAC) clauses must be tied to measurable thresholds. Purchase price should be in a foreign currency, with clear FX conversion rules.

Representations and Warranties: Broader warranties are required, given record-keeping gaps. These should cover corporate status, tax compliance, licences, employees, eCCI status, and litigation. Disclosure schedules backed by documentary evidence are essential.

Disclosure Letters and Schedules: Material disclosures must be carefully managed given frequent informality in records.

Conditions Precedent (CPs): Must include regulatory approvals, eCCI evidence, rectification of records, discharge/perfection of charges, and transfer/renewal of licences. A CP satisfaction certificate is strongly recommended.

Post-Closing Obligations: Updating CAC and beneficial ownership registers, transferring licences, regularising employee records, and integrating governance structures must all be tracked.

Ancillary Documents: Shareholders’ agreements, management service agreements, security documents, and escrow agreements all play vital roles in ensuring risk allocation and enforceability.

Hybrid Investment Instruments: Beyond traditional equity and straight debt, GPs in Nigeria increasingly rely on hybrid instruments that combine downside protection with equity upside. These include:

Convertible Notes: Debt that may be converted into equity at maturity or a trigger event. The note itself is not registrable with CAC, but any security granted to back it must be registered. Conversion into shares must be reflected by a return of allotment.

Convertible or Redeemable Preference Shares: Equity with debt-like features. As shares, they must be registered with CAC.

Mezzanine Debt with Equity Kickers: Loans with warrants or options to acquire equity.

Debt with Warrants: Loans coupled with detachable rights to acquire equity later.

Participating Preference Shares: Preference shares with both fixed dividend and profit participation rights.

In Nigeria, the most common hybrids are convertible loan notes and redeemable preference shares. The former requires careful handling of CAC filings for any associated security and conversion, while the latter must be properly reflected in the company’s share capital. Where foreign investment is involved, both structures should be backed by eCCI to guarantee repatriation of dividends or exit proceeds. Also, because convertible notes are not immediately an acquisition, from a timing perspective, it is important to determine when FCCPC approval has to be sought, following a conversion event. From a recent experience, investee management may argue the absence of FCCPC approval as the basis for resisting an equity conversion, thereby frustrating an investor equity conversion.

6. Governance and Minority Protection
For GPs who typically invest as minorities, governance rights are critical. Reserved matters usually cover share issues, capex, budgets, indebtedness, and dividends. Board rights, exit mechanics, ESG and compliance covenants should all be captured.

7. Financing, Security and Cashflows
Where debt forms part of the structure, Nigerian secured transactions law applies. Charges must be registered with the CAC within 90 days. Dividend and cash management policies must be carefully structured. Accordingly, careful consideration must be given to the drafting of the shareholders’ agreement. In practice, it is advisable that the parties to the shareholders’ agreement reach an agreement in principle on these issues, before the commencement of drafting.

8. Currency, Repatriation and FX Risk
Currency risk often determines real returns. There are higher chances that investments backed by eCCI will have access to FX for repatriation. Hedging tools exist but are costly. SPA provisions may include FX collars or purchase price adjustments.

9. Dispute Resolution and Enforcement
While Nigerian law governs corporate matters, arbitration (Lagos, LCIA, ICC) is often chosen for disputes. Nigerian courts support arbitration but enforcement may be protracted. Foreign judgments are enforceable only from select jurisdictions.

10. Execution Practicalities
Execution discipline is critical. Long-stop dates, deliverables checklists, and split signing/closing mechanics must be built in. Share certificates, CAC filings, and sectoral updates must be promptly handled.

Conclusion
Nigeria offers significant growth opportunities, but GPs must approach investments with a highly disciplined corporate lens. From structuring and control rights to regulatory clearances, FX mechanics, tax compliance, and documentation, risks are real but manageable. Sophisticated GPs who anticipate these issues will be best placed to unlock value. For investors willing to navigate the complexities, Nigeria remains not only a gateway to West Africa but also one of the continent’s most rewarding destinations for private equity.